By Robert Mullin

A technical conference that convened at FERC headquarters last week to explore external resource participation in the Energy Imbalance Market (EIM) began on a contentious note but concluded with parties on both sides of the issue admitting to a better understanding of the others’ perspectives (ER16-1518).

The commission ordered the staff-led conference in June when it rejected CAISO’s proposal to prohibit EIM members from implementing economic bidding at the market’s interties until the ISO could develop “appropriate rules” to manage the transactions. (See FERC Order Prods CAISO to Allow EIM Intertie Bidding.)

The ISO’s Tariff stipulates that each balancing authority area (BAA) that joins the EIM can determine for itself whether to allow resources located outside the market to submit economic bids at the BAA’s transmission seams. Two factors prompted the ISO to seek to undo the provision.

First, EIM participants PacifiCorp and NV Energy had expressed concerns that implementing the practice would add complexity to their initial participation in the market. Second, the ISO said its own experience with low liquidity in 15-minute bidding at its own seams suggested that the benefits of allowing such bidding was “questionable.”

Power Marketers Weigh In

The Western Power Trading Forum (WPTF), a group of power marketers, filed the only protest against the proposal, saying the amendment was an “attempt to codify” an “effective roadblock to market evolution” that discriminated against third-party participation in the EIM.

That argument found support with FERC, which called for further discussion on the issue.

CAISO laid out its perspective in its opening remarks at the conference.

“We must be careful not to impose requirements that degrade the fundamental design elements of the Energy Imbalance Market that could ultimately unravel the benefits the Western market is experiencing,” said Mark Rothleder, the ISO’s vice president of market quality and renewable integration.

The position staked by WPTF and other stakeholders created that risk, Rothleder said. He added that there is a “misperception that there is an easy plug-and-play format” for intertie bidding that EIM entities can adopt.

“That is because the EIM addresses a set of necessary but complicated and interrelated issues, such as resource sufficiency, transmission utilization and compensation, resource flexibility, market power mitigation, greenhouse gas accounting, feasibility of flows across the network, feasibility of the resource dispatches and performance monitoring,” Rothleder said.

New market design elements cannot be imposed without considering all of those factors, Rothleder contended.

CAISO Pans ‘Generic’ Bidding

“Generic” intertie bidding — bids by unspecified resources on a system neighboring the EIM — is “not consistent with the principles of the EIM,” Rothleder said.

In August, the ISO began work on a plan that would require external participating resources to have characteristics comparable to those already participating in the EIM. These “specified resources” would have 15-minute scheduling and five-minute dispatch capability. They would also have to meet data exchange, settlements and metering requirements in order to verify delivery. (See CAISO Charts Course for External Resource Participation.)

Rothleder added that there is no evidence that the absence of generic bidding is imposing hardship on the West’s bilateral markets.

“Moreover, we cannot waste ISO and stakeholder time and resources [on efforts] that are not wanted by other market participants as a whole,” Rothleder said.

Ellen Wolfe, a consultant representing the WPTF, challenged Rothleder, contending that the Western marketplace has in fact “lost some functionality with the advent of the EIM.” Within the EIM area, she explained, market members and a “small number” of third-party participants can bid into the EIM’s 15- and five-minute markets on an economic basis.

However, participants outside the market’s boundary cannot bid into an EIM member’s balancing area during those intervals; instead they are forced to bid an hour in advance — a byproduct of the need for an EIM member to come into each hour fully balanced.

The process exposes outside resources to unknown congestion charges and forces them to become price-takers of the market’s intra-hour adjustments, Wolfe said.

Before the EIM, a party holding system energy — energy from an unspecified resource — could schedule through a utility area and make changes up to 20 minutes before delivery with no price impact. Currently, schedule changes with an EIM member now incur an unpredictable fee for nonperformance within the hour — even for power being wheeled through the member’s balancing area.

Under WPTF’s counterproposal, offers from resources outside the EIM would be bid into the market on a 15-minute basis. CAISO could fold those bids into its EIM runs and dispatch with other market resources “with little or no burden on the EIM entity,” Wolfe said.

External offers would have the same performance obligations as those originating internally and would be subject to the same imbalance energy risks, Wolfe said. The resulting solution would provide the increased efficiency of a deeper bid stack, which could relieve concerns about market power in certain areas of the EIM, she said.

‘Not Bullish’ on Stakeholder Process

Wolfe was skeptical of CAISO’s contention that the issue could best be resolved by stakeholders, saying that she was “not particularly bullish on that process” based on past experience. Issues related to open access are not “appropriately left for a process that depends on a popular vote,” she said.

“Rather, issues of open access seem of the category of right versus wrong — and sometimes right is not the most popular,” Wolfe said.

Speaking on behalf of the EIM’s present utility members, Sara Edmonds, general counsel for PacifiCorp Transmission, pointed out that each member allows for external participation through pseudo-ties or dynamic schedules.

Edmonds also spoke about the three “critical elements” needed for “effective EIM diversity”: generating resources, load and transmission.

“Alternatives — or derivatives — to full participation which deviate from these fundamentals could threaten the long-term success of the EIM, as well as its continued growth,” Edmonds said, citing concerns about the shifting of costs and risks to EIM members.

No Desire to be Market Operator

One risk is that EIM BAAs will become responsible for balancing multiple remote sources of external generation at multiple intertie points.

“We signed up to be a market participant, but not a market operator,” said Justin Thompson, director of resource operations and trading at Arizona Public Service. “If we go with intertie bidding, we’re going to turn into a quasi-market operator.”

Thompson also voiced concern about the potential for “free riders” on the EIM system, noting that some of APS’s neighboring utilities are considering market membership.

“Instead of joining the full market, they can just intertie bid at our boundary and take up all our transmission that we’re using for EIM participation,” Thompson said.

Therese Hampton, executive director for the Public Generating Pool (PGP), which represents 10 municipal utilities in Oregon and Washington, voiced the perspective of small organizations that don’t have the financial means to join the EIM but could still benefit from — and provide benefits to — the market.

Hampton said that EIM members with diverse resource portfolios stand to benefit the most from joining the market. However, PGP’s members own mostly hydroelectric resources, control little transmission and deal with limited load and congestion.

Given the limited financial upside of joining, the EIM’s upfront costs are a difficult sell for ratepayers, Hampton said. “We believe there should be another option.”

Not ‘Free Riders’

While PGP is open to market rules that require specific information from external resources, the group also wants the ISO to consider allowing resource aggregation, just as it does for internal resources.

“We’ve never intended or want to be free riders,” Hampton said, acknowledging that PGP recognizes that participation could come with “appropriate” administrative costs.

PGP’s resources have the surplus capacity and flexibility to participate in the market on the five-minute basis, Hampton said. She also added that the EIM’s rules for external participation should be developed by CAISO and not be relegated to individual BAAs, as the Tariff currently stipulates.

Rothleder pointed out that CAISO had no experience with 15-minute bidding at its own interties when it was designing the EIM. At the time, it thought the determination for allowing intertie bidding was best left to each EIM member as the entity most familiar with its own transmission capabilities.

“It is not the same thing as the ISO’s intertie bids at the border,” Rothleder said. He pointed out that EIM members have to contend with other protocols related to transmission allocation that overlay their own participation in the market —something not applicable to the ISO as a central market operator.

Shahzad Lateef, director of transmission and distribution system operations at NV Energy, described the complexity of participating in the EIM, which entails responding to intertie bids administered by the ISO while maintaining reliability within its own BAA.

“Every resource that CAISO dispatches higher, we have to look at all our congestion elements,” Lateef said, explaining the utility’s need to know exactly what sink a dispatched resource is intended to serve, even in neighboring EIM BAAs.

“The complexity continues to increase when you think there’s the potential of 35 tie points with so many potential bidders that will all be moved up or down based on their bid value by someone other than NV Energy,” Lateef said.

Robb Davis, energy policy advisor for Chelan County Public Utility District, noted that his utility sells a large slice of its hydroelectric output to EIM member Puget Sound Energy, which pseudo-ties the resource into its own BAA. While the utility is reluctant to take on the cost of EIM membership, as a holder of surplus generation, it does sell additional slices of its output to other marketers and utilities that want access to the market.

Davis noted that Chelan’s resources are situated in an area already modeled by the ISO — and the telemetry is already in place to monitor performance.

“It shouldn’t be an impediment to their participation that we as a balancing authority area don’t want to incur those costs for our customers in our county,” Davis said.

BPA’s Intent

Suzanne Cooper, vice president of bulk marketing at Bonneville Power Administration, said that while her agency isn’t preparing to join the market now, it might consider doing so in the future.

“Whatever principles we apply for external resources to participate in the market should be the same whether we’re in the market or we’re not.”

Mike MacDougall, director of trade policy at Powerex, conceded that generic external bidding at the interties might not be the best solution for facilitating external participation. But he said that BPA, PGP and Powerex would be willing to work with the EIM to develop a participation model that addresses issues such as free riders and transmission usage.

“That’s premised on the fact that there are benefits that arise from that broader participation and liquidity and production costs savings,” MacDougall said.

“I do appreciate Ms. Hampton trying to tease out and separate the issues of smaller BAs who want to come and be part of the [EIM’s] optimization process,” said Lauren Rosenblatt, an attorney with NV Energy. “And if there are barriers to entry for smaller BAs to join the EIM, then — listening to my colleagues who are all EIM entities over the last nine months — we all embrace addressing that.”

Rosenblatt said existing EIM members are excited about Sacramento Municipal Utility District’s recent announcement that it intends to join the market because the utility brings the “trifecta” of load, resources and transmission. (See related story, SMUD to Join EIM in Spring 2019 at the Earliest.)

To Be Continued

Conference participants wrapped up the day on a conciliatory note.

CAISO Assistant General Counsel Anna McKenna encouraged parties outside the EIM to participate in the processes developed to address West-wide issues, particularly the ISO’s Regional Issues Forum and EIM governing body meetings.

“We have a lot of ways for these issues to be vetted or get more attention,” McKenna said. “What would be really helpful is to continue this dialog and focus in a little better on resolving specific issues.”

Wolfe said hearing “the other parties’ concerns was very beneficial.” She also lauded “the amount of brainstorming” that came out of the FERC session, saying it suggested that the ISO might already have the functionality to solve some of the problems related to external participation.

“I wonder if there might be a way to sort of continue that without taking on these big “I” initiatives,” Wolfe said, adding that the ISO’s forums could serve as venues for more discussion.

Robert Cromwell, director of power contracts and resource acquisition at Seattle City Light, offered a “concrete suggestion” to CAISO: “Perhaps having the ISO articulate specifically the technical requirements for an external resource participant — consistent with current market design — might help inform those prospective participants and be a foundation for further dialogue and discussion.”

CAISO’s Rothleder called the conference “enormously helpful” in furthering the discussion, adding that current EIM participants might have to consent to removing some of the current barriers to entry in order to foster expansion of the market.

“I hope we can all come to the table with an open mind,” Rothleder said.